3. Important Factors for Controlling Labour Cost
4. Distinction between Direct and Indirect Labour Costs
10. Differential Piece-Rate System (or Taylor's Plan)
11. Merrick's Multiple Piece-Rate Plan
12. Gantt's Task and Bonus Wage Plan
After reading this chapter, you should be able to understand the following topics:
The second most important element of cost (material being the first one) of production is labour. Labour refers to human contribution to production. The efficiency of production to a large extent depends on the proper utilization of labour force. Therefore, control of labour cost is a major problem before a firm's management.
Labour cost is one of the most important factors considered by an entrepreneur before venturing into the industrial field. It helps in studying the extent of expenditure incurred by entrepreneurs on labour welfare and social security aspects, in addition to wages/salaries paid to labour.
Study of labour costs also helps in fixing wages on a realistic basis, logical collective bargaining, evaluation of welfare measures, studying trends over a period of time, deciding on the location of an industry, etc. Labour cost data are also important for policy formulation at the national and regional levels.
Various aspects of labour cost, such as wages/salaries, bonuses, contributions to provident and other funds, and staff welfare expenses for all employees employed directly or through contractors, are collected every year. The total of these components gives the labour cost. When used in line with the number of man-days worked, this gives the average labour cost per man-day worked.
To exercise an effective control over labour costs, the essential requisite is efficient utilization of labour and allied factors. The main points that need to be considered for controlling labour costs are the following:
Any labour cost that is specifically incurred for or can be readily charged to or identified with a specific job, contract, work order or any other unit of cost is termed direct labour cost; it includes all labour that is engaged in converting raw materials into manufactured articles in the case of manufacturing industries and other forms of labour that, although not immediately engaged in converting raw materials into manufactured articles, nonetheless are incurred wholly or specifically for any particular unit of production and, hence, can be readily identified with the unit of production.
Individual incentive plan
Straight piecework plan
Standard hour plan
Bedeaux plan
Taylor's differential piece-rate system
Merrick's multiple piece-rate system
Halsey's 50–50 method
Rowan's plan
Gantt's plan
Labour turnover is the rate at which employees join and leave an organization. In other words, it refers to ‘how long employees tend to stay’ or ‘the rate of traffic through the revolving door’. Turnover is measured for individual companies and for their industry as a whole. If an organization experiences higher rate of labour turnover as compared to their competitor, it is going to affect them adversely. High turnover can be harmful to a company's productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers.
It is a normal feature in every organization that some workers leave their jobs and some new workers take their place. This change in the labour force is known as labour turnover. In other words, labour turnover denotes the percentage of change in the labour force in an organization. Labour turnover refers to the number of workers left during the period in relation to the average number of workers employed during the period. It refers to the rate of displacement of labour employed in an organization. A high rate of labour turnover denotes that labour is not stable and that there is frequent change in the labour force in an organization. A high labour turnover rate (LTR) is an important indication of high labour cost. It is therefore not desirable.
Turnover can be classified as ‘'internal'’ or ‘'external'’. Internal turnover involves employees leaving their current positions and taking up new positions within the same organization. Both positive and negative effects of internal turnover exist and, therefore, it may be equally important to monitor this form of turnover as it is to monitor its external counterpart. Internal turnover might be moderated and controlled by typical human resources (HR) mechanisms, such as an internal recruitment policy or formal succession planning.
Experts differentiate between instances of voluntary turnover, which are initiated at the choice of an employee, and instances of involuntary turnover, where the employee has no choice in his or her termination (such as long-term sickness, death, moving overseas, or employer-initiated termination).
Models of turnover
Over the years, there have been thousands of research articles exploring the various aspects of turnover, and in due course several models of employee turnover have been promulgated. The first model, and by far the one inviting the most attention from researchers, was put forward in 1958 by March and Simon. After this model was proposed, there were several efforts to extend the concept. Since 1958 the following models of employee turnover have been published:
A minimum value of labour turnover is common and is good for all industries. But excessive or high labour turnover is dangerous. Excessive labour turnover may occur due to the following reasons:
The major effects of labour turnover are as follows:
The major costs of labour turnover are as follows:
Labour turnover does not just create costs. Some level of labour turnover is important to bring in new ideas, skills and enthusiasm to the labour force. A ‘natural’ level of labour turnover can be a way in which a business can slowly reduce its workforce without having to resort to redundancies.
There are three methods for measuring labour turnover:
Illustration 1
From the following data provided, find the LTR by applying the (a) flux, (b) replacement and (c) separation methods:
Number of workers on the payroll: | |
At the beginning of the month | 450 |
At the end of the month | 550 |
During the month, eight workers left, 25 workers were discharged and 80 workers were recruited. Of these, 10 workers were recruited in the vacancies of those leaving, whereas the rest of the workers were engaged for an expansion scheme.
Solution:
Problem 1.
From the following particulars supplied by the personnel department of a firm, calculate labour turnover:
Total number of employees at the beginning of the month | 2,010 |
Number of employees recruited during the month | 50 |
Number of employees who left during the month | 100 |
Total number of employees at the end of the month | 1,990 |
Illustration 1a
From the following information, calculate LTR:
Number of workers at the beginning of the year | 3,900 |
Number of workers at the end of the year | 4,300 |
During the year, 80 workers left while 160 workers were discharged. A total of 800 workers were recruited during the year; of these, 200 workers were recruited because of leavers and the rest were engaged in accordance with an expansion scheme.
Solution:
LTR:
Labour flux rate:
Labour flux rate denotes total change in the composition of labour force due to additions and separations of workers.
Problem 1a. Raghavendra Metal Company gives the following information
Number of employees on 1 April 1989: 200 |
Number of employees on 31 March 1990: 240 |
Number of employees resigned: 40 |
Number of employees discharged: 26 |
Number of employees replaced: 11 |
Calculate labour turnover by applying the three methods.
[Madras, B.Sc., (ICE) May 2000; Bharathidasan, B.Com., April 1991]
[Ans: labour turnover under (a) separation method—18.18%, (b) replacement method—5% and (c) flux method—23.18%]
Illustration 1b
From the following data, find the LTR by applying the (a) flux, (b) replacement and (c) separation methods.
The number of workers on the payroll at the beginning of the month is 500 and that at the end of the month is 600. During the month, 15 workers left, 25 workers were discharged and 150 workers were recruited. Of these, 45 workers were recruited in the vacancies of those leaving, whereas the remaining workers were engaged for an expansion scheme.
Solution: Determination of LTR:
Problem 1b. The personnel department of a concern provides the following information regarding its labour
Number of employees on 1 January: 1,800 |
Number of employees on 31 January: 2,200 |
During the month, 20 workers quit and services of 80 workers were terminated. Three-hundred workers are needed; of these, 50 workers are recruited. Calculate LTR.
[Madras, B.Com., (ICE) May 1999]
[Ans: LTR under (a) separation method—10%, (b) replacement method—2.5% and (c) flux method—12.5%]
Hint: The number of workers needed is irrelevant. Those who are actually recruited alone should be taken into account.
Illustration 2
Different methods of labour turnover
Number of workers on the payroll: | |
At the beginning of the month | 1,200 |
At the end of the month | 1,500 |
During the month, 20 workers left, 50 workers were discharged and 200 workers were recruited. Of these, 30 workers were recruited in the vacancies of those leaving, whereas the rest were engaged for an expansion scheme.
Solution:
Average number of workers = (1,200 + 1,500) ÷ 2 = 1,350
Problem 2. From the following data provided, find the LTR by applying the (a) flux, (b) replacement and (c) separation methods
Number of workers on the payroll: | |
At the beginning of the month | 500 |
At the end of the month | 600 |
During the month, five workers left, 20 workers were discharged and 125 workers were recruited. Of these, 10 workers were recruited in the vacancies of those leaving, whereas the rest were engaged for an expansion scheme.
[I.C.W.A. Inter, June 1993]
[Ans: (a) 18.18%, (b) 1.82%, (c) 20%]
Hint: Replacement method ignores recruitment for expansion. Flux method includes all recruitments including those for expansion.
Illustration 2a
The number of workers on the roll at the commencement of the year were 9,000 and at the end of the year 8,000. The number of separations and replacements during the year were 2,000 and 1,500, respectively. Calculate LTR with the help of the flux method.
Solution: Labour turnover under the flux method:
∴ Under the flux method, LTR is calculated as follows:
Problem 2a. The following information is extracted from the records of a company for the month of October 1998:
Number of employees at the beginning of the month | 950 |
Number of employees at the end of the month | 1,050 |
Number of employees who resigned | 10 |
Number of employees who were discharged | 30 |
Number of employees replaced in the vacancies | 20 |
Number of employees appointed due to an expansion scheme | 120 |
Calculate LTR.
[Madras, B.Com., C & M, Oct. 1990]
[Ans: LTR under (a) separation method—4%, b) replacement method—2%; and (c) flux method—18%]
Hint: Replacement method ignores recruitment for expansion, and flux method includes all recruitments including those for expansions.
It is the analysis of time spent in going through the different motions of a job. Such studies were first instituted in offices and factories in the United States in the early twentieth century. They were widely adopted as a means of improving work methods by subdividing the different operations of a job into measurable elements.
The first effort at time study was made by F. W. Taylor in the 1880s. Early in the twentieth century, Frank and Lillian Gilbreth developed a more systematic and sophisticated method of time and motion study for industry, taking into account the limits of human physical and mental capacity and the importance of a good physical environment.
The idea of a time and motion study is even today often associated with production lines and the manufacturing industry. It is understood as a source of disagreement between management and workers. However, if used properly a time and motion study can be of benefit to modern companies and their workforce. Unfortunately, too many companies still see a time and motion study as simply a way to increase profits with no benefits returning to the workforce who are ultimately responsible for those profits.
Time study is an art of observing and recording the time required to complete a job. This analysis involves consideration of the following points:
The time study finds the differences between efficient and inefficient workers.
Motion study is an art of observing and recording the movements required to complete a job. There are 17 fundamental motions, which are always present in every human activity. Such studies help in eliminating the unnecessary movements of workers and avoid the wastage of energy.
The standard time can be determined accurately with the help of time and motion studies, which is important for determining labour remuneration.
The following are some important advantages of time and motion studies:
This is the traditional method of wage payment. The time spent on work is made the basis for wage calculations. Wages are paid according to the time spent by workers irrespective of their output.
The merits of the time wage system are as follows:
The demerits of time wage payment are as follows:
Piecework or piece work describes the types of employment in which a worker is paid a fixed ‘piece rate’ for each unit produced or action performed. Piecework is also a form of performance-related pay (PRP) and is the oldest form of performance pay.
In a manufacturing setting, the output of piecework can be measured by the number of physical items (pieces) produced, such as when a garment worker is paid per operational step completed regardless of the time required for the step. In a service setting, the output of piecework can be measured by the number of operations completed, as when a telemarketer is paid by the number of calls made or completed regardless of the outcome of the calls (pay for only certain positive outcomes is more likely to be called a sales commission or incentive pay).
The disadvantages of the piece wage system are as follows:
Wages are paid in this system in accordance with the output of production. Wage is calculated irrespective of the time spent on a job. Table 6.1 shows the advantages and disadvantages of the straight piece-rate system.
Table 6.1 Advantages and Disadvantages of Straight Piece-Rate Syste
Advantages | Disadvantages |
---|---|
Simple | Discourages quality focus |
Easy-to-understand focus on productivity | No job security |
No compensation for breakdown | |
Suitable for efficient workers | No compensation for sickness |
No guarantee of minimum wages | |
Easy to pacify workers | Discourages group effort |
Suitability
|
There are two types of wages fixes: lower and higher. Those who fail to reach the fixed standard are paid lower wages, and those who reach the standard or above the standard are given higher wages. Here the penalty for not reaching the standard is high; hence, workers tend to produce at the minimum fixed rate.
The idea behind this scheme is to induce all workers to at least attain the standard, at the same time if a worker is found efficient he or she stands to gain.
Advantages of the differential piece-rate system are as follows:
Disadvantages of the differential piece-rate system are as follows:
This is a modification over Taylor's plan. In this plan, a minimum base wage is not guaranteed. Wage is calculated as follows:
The advantage of Merrick's plan is that efficient workers are rewarded.
The disadvantages of Merrick's plan are as follows:
In this plan, a minimum wage is guaranteed. Minimum wage is given to those workers who complete a job in standard time. If the job is completed in less time, then there is a hike in wage rate. This hike varies from 25% to 50% of the standard rate.
The advantages of the Gantt's plan are as follows:
The disadvantage of the Gantt's plan is that there is emphasis on high speed or high production rate.
In this plan, incentive is given to a worker who completes work before the standard time to complete a job. However, a minimum base wage is guaranteed to a worker who completes a job in the standard time fixed for the job.
Advantages of Halsey's plan are as follows:
Disadvantages of Halsey's plan are as follows:
In this plan, an incentive for completing a job in lesser time than the standard time is paid to a worker. The incentive is paid on the basis of a ration, which is time saved over standard time per unit standard time.
Advantages of the plan are as follows:
Disadvantages of the plan are as follows:
In this plan, a minimum time wage is guaranteed. Working conditions and standard output are fixed on the basis of time study. Bonus scheme is as follows (SO refers to standard output and GW refers to guaranteed wages):
Advantages of Emerson's plan are as follows:
Disadvantages of the plan are as follows:
Illustration 3
A work measurement study was carried out in a firm for 10 hours and the following information was generated:
Units produced | 400 | |
Idle time | 20% | |
Performance rating | 120% | |
Allowance time | 10% of standard time | |
What is the standard time for the task? |
Solution:
Units produced | 400 | |
Time spent | 10 hours | |
Idle time | 20% |
Therefore, observed time per unit in minutes =
Time per unit is 1.2 minute when performance rating is 120%. Therefore, normal time per unit at 100% performance rating is
Therefore,
Alternatively, standard time may be calculated as follows:
Illustration 4
Calculate the earnings of workers A and B under straight piece-rate system and Taylor's differential piece-rate system from the following particulars
Normal rate per hour = Rs 1.80 |
Standard time per unit = 20 seconds |
Differentials to be applied: |
80% of piece rate below standard |
120% of piece rate at or above standard |
Worker A produces 1,700 units per day and worker B produces 2,000 units per day |
Solution:
Earnings of worker A:
Under straight piece-rate system,
Under Taylor's differential piece-rate system,
High piece rate has been applied because worker A's daily production of 1,700 units is more than the standard daily production of 1,440 units.
Earnings of worker B:
Under straight piece-rate system,
Under Taylor's differential piece-rate system,
High piece rate has been applied because worker B's daily production of 2,000 units is more than the standard daily production of 1,440 units.
Problem 4. On the basis of the following information, calculate the earnings of A and B under (a) straight piece-rate basis and (b) Taylor's differential rate system:
Standard production: 8 units per hour |
Normal time rate: Rs 4 per hour |
Differential rates to be applied: |
80% of piece rate below standard |
120% of piece rate at or above standard |
In a 9-hour day, A produced 54 units and B produced 75 units |
[B. Com., Andhra]
[Ans: (a) A = Rs 27.00 and B = Rs 37.50; (b) A = Rs 21.60 and B = Rs 45.00]
Illustration 5
Calculate the earnings of workers A, B and C under straight piece-rate system and Merrick's multiple piece-rate system from the following particulars:
Normal rate per hour | Rs 1.80 |
Standard time per unit | 1 minute |
Output per day is as follows: | |
Worker A: 390 units | |
Worker B: 470 units | |
Worker C: 575 units | |
Working hours per day are eight. |
Solution:
Calculation of level of performance:
Earnings of worker A:
Under the straight piece-rate system,
Under Merrick's multiple piece-rate system,
Normal piece rate has been applied because worker A's level of performance is 80%, which is below 83%.
Earnings of worker B:
Under the straight piece-rate system,
Under Merrick's multiple piece-rate system,
Worker B's level of performance is 93.75%, which is between 83% and 100%; so B is entitled to 110% of normal piece rate (that is, 110% of 3 paise or 3.3 paise per unit).
Earnings of worker C:
Under the straight piece-rate system,
Under Merrick's multiple piece-rate system,
Worker C's level of performance is 115%, which is more than 100% of standard output; so, C is entitled to 120% of normal piece rate (that is, 120% of 3 paise or 3.6 paise per unit).
Problem 5. On the basis of the following information, calculate the earnings of A, B, C and D under Merrick's differential piece-rate system
Standard production per hour: 12 units | |
Normal rate per unit: Rs 6 | |
In an 8-hour day: | |
A produced | 64 units |
B produced | 96 units |
C produced | 84 units |
D produced | 100 units |
[B. Com. Tirupathi]
[Ans: A—Rs 384.00, B—Rs 633.60, C—Rs 554.40, D—Rs 720.00]
Illustration 6
From the following data, calculate the total monthly remuneration of three workers A, B and C under the Gantt's task and bonus scheme:
Solution: Standard production per month is 1,000 units and piecework rate is 50 paise per unit, so guaranteed monthly payment is Rs 500 (that is, 1,000 units at 50 paise).
Level of performance:
Earnings of worker A:
Worker A's level of performance is 95%, which is below the standard performance; so A will get Rs 500, which is the guaranteed monthly payment.
Earnings of worker B:
Worker B's level of performance is 105%; so B will get wages for the standard time and a 20% bonus. Thus, B's earnings will be as follows:
Rs | |
---|---|
Wages for 1,000 units at 50 paise per unit | 500 |
Add: 20% bonus | 100 |
600 |
Earnings of worker C:
Worker C's level of performance is 110%, which is more than the standard performance; so C will get piece wages plus 20% bonus.
Thus, his earnings are as follows:
Problem 6. The following are particulars applicable to a work process:
Time rate: Rs 5 per hour |
High task: 40 units per week |
Piece rate above high task: Rs 6.50 per unit |
In a 40-hour week, each of the following workers produced |
A—35 units |
B—40 units |
C—41 units |
Calculate the wages of the workers under Gantt's task and bonus plan.
[Madras, B.A. Corp. C& M, Sept. 1990]
[Ans: earnings: A: time wages 40 × 5 = Rs 200; B: time wages + 20%, bonus = 200 + 40 = Rs 240; C: high piece rate = 41 × 6.5 = Rs 266.5]
Illustration 7
Rate per hour = Rs 1.50 |
Time allowed for the job = 22 hours |
Time taken = 18 hours |
Calculate the total earnings of a worker under the Halsey plan. Also find the effective rate of earning.
Solution:
Therefore, effective rate of earning per hour
Note: The percentage of bonus is to be taken as 50% when it is not given.
Problem 7. Using the following data, calculate the wage payable to a worker under Rowan's premium bonus plan and Halsey's premium bonus plan:
Time allowed: 40 hours |
Time taken: 32 hours |
Rate per hour: Rs 5.00 |
[B. Com., Nagarjuna]
[Ans: Rs 192.00 (Rowan); Rs 180.00 (Halsey)]
Illustration 8
A worker completes a job in a certain number of hours. The standard time allowed for the job is 10 hours, and the hourly rate of wages is Re 1. The worker earns at the 50% rate a bonus of Rs 3 under the Halsey plan. Ascertain the worker's total wages under the Rowan premium plan.
Solution: The worker earns Rs 3 as a bonus at 50%; so total bonus at 100% should be Rs 6. The hourly rate of wages being Re 1, the time saved should be 4 hours.
Standard time allowed | 10 hours | |
Add: | Time saved | 4 hours |
Time taken | 6 hours |
Earnings under the Rowan's premium plan:
where,
T = time taken, that is, 6 hours
S = standard time, that is, 10 hours
R = rate per hour, that is, Re 1
Problem 8. In a manufacturing concern, employees are paid incentive bonus in addition to their normal wages at hourly rates. Incentive bonus is calculated in the proportion of time saved to time allowed. The following are the details of employee X
Normal wages (rupees per hour) | 4 | |
Completed units of production | 6,000 | |
Time allowed (per 100 units) | 0.8 hour | |
Actual time taken | 42 hours |
You are required to work out the amount of bonus earned and the total amount of wages received.
[Madras, B.A. Corp. C & M, March 1997]
[Ans: bonus earned = Rs 21; standard time = 48 hours; total wages = Rs 189]
Illustration 8a
From the following particulars, you are required to work out the earnings of a worker for a week under (a) straight piece-rate system, (b) differential piece-rate system, (c) Halsey's premium scheme (50% sharing) and (d) Rowan's premium scheme:
Weekly working hours | 45 | |
Hourly wage rate | Rs 8.00 | |
Piece rate per unit | Rs 3.50 | |
Normal time taken per piece | 20 minutes | |
Normal output per week | 120 pieces | |
Actual output per week | 150 pieces | |
Differential piece rate | 80% of piece rate when output is below normal and 120% of piece rate when output is above normal. |
Solution: Statement showing the computation of earnings of a worker (in a week) under various wage schemes/incentives plans
Particulars | Amount (Rs) |
---|---|
(a) Straight piece rate (actual output per week × piece rate per unit) = (150 units × Rs 3.5) | 525 |
(b) Differential piece rate (actual output per week × differential piece rate per unit) = (150 units × Rs 3.5 × 120/100, as the output is above normal) | 630 |
(c) Halsey premium scheme (hours worked per week × rate per hour) + (50% time saved in hours × hourly wage rate) = (45 hours × Rs 8) + 50% (time allowed 20/60 × 150 units = 50 hours − time taken 40 hours) × Rs 8 [= Rs 360 + Rs 40] | 400 |
(d) Rowan premium scheme (hours worked × rate per hour) + (time saved/time allowed) × time taken × rate per hour = 45 × Rs 8 + [(10 hours/50 hours) × 40 hours × Rs 8] [= Rs 360 + Rs 64] | 424 |
Illustration 8b
Three workers (Govind, Ram and Shyam), having worked for 8 hours, produced 90, 120 and 140 pieces of a product X on a particular day in May in a factory. The time allowed for producing 10 units of X is 1 hour and their hourly rate is Rs 4. Calculate for each of the three workers earnings for the day under the (a) straight piece-rate, (b) Halsey’ premium bonus (50% sharing) and (c) Rowan's premium bonus methods of labour remuneration.
Solution:
Standard labour cost per unit (Rs.4/10) = Re 0.40
Earnings (total) = number of units produced rate per unit
Govind = (90 × Re 0.40) = Rs 36
Ram = (120 × Re 0.40 = Rs 48
Shyam = (140 × Re 0.40) = Rs 56
Hours worked × rate per hour) + time saved in hours × rate per hour)
Govind = (8 × Rs 4) + (0.50 × nil × Rs 4) Rs 32
Ram = (8 × Rs 4) + [0.50 × (10 – 8)] × Rs 4 = Rs 36
Shyam = (8 × Rs 4) + [0.50] × (12 – 8) × Rs 4 = Rs 40
(Hours worked × rate per hour) + (time saved / time allowed × time taken × rate per hour
Govind = (8 × Rs 4) + (1/8 hours) × 8 hours × Rs 4 = Rs 36
Ram = (8 × Rs 4) + (4/10) × 8 hours × Rs 4 = Rs 44.8
Shyam = (8 × Rs 4) + (6/12) × 8 hours × Rs 4 = Rs 48
Illustration 9
Standard output per day of 8 hours is 20 units. Actual output of a worker for 8 hours is 22 units. Rate per hour is Rs 2.50. Calculate the wages payable to the worker according to Emerson's efficiency plan.
Solution:
Bonus payable is 45%, which is calculated as follows:
At 100% efficiency | 20% of time wages |
For next 10% efficiency at 1% for each | |
1% increase in efficiency beyond 100% | 10% of time wages |
Total bonus payable | 30% of time wages |
Calculation of total wages:
Problem 9. In a manufacturing concern, the daily wages guaranteed for workers is Rs 40. The standard output for a month is 1,000 articles, representing 100% efficiency. The rate of wages is paid without bonus to those workers who show up to 66 2/3% efficiency. Beyond this, bonus is payable in a graded scale
Efficiency (%) | Bonus (%) |
---|---|
90 | 10 |
100 | 20 |
A further increase of 1% of bonus is provided for every 1% increase in efficiency. Calculate the total earnings of A, B, C and D who have worked 26 days in a month with the following productivity: A—500 units, B—900 units, C—1,000 units and D—1,200 units.
[Mysore, B.Com.]
[Ans: earnings of workers: A (only time wages)—26 × 40 = Rs 1,040; B—1,040 + 10% of 1,040 = Rs 1,144; C—1,040 + 20% of 1,040 = Rs 1,248; D—1,040 + 40% of 1,040 = Rs 1,456]
Illustration 10
Form the following particulars prepare labour cost per man-day of 8 hours
(a) Basic salary | Rs 4 per day |
(b) Dearness allowance (DA) | 25 paise per every point over 100 (cost of living index for working class); current cost of living index is 800 points |
(c) Leave salary | 10% of (a) and (b) |
(d) Employer's contribution to provident fund (PF) | 8% of (a), (b) and (c) |
(e) Employer's contribution to state insurance | 2.5% of (a), (b) and (c) |
(f) Expenditure on amenities to labour | Rs 20 per head per mensem |
(g) Number of working days in a month | 25 days of 8 hours each |
Solution: Statement of labour cost (per man-day of 8 hours):
Problem 10. From the following data, prepare a statement showing the cost per day of 8 hours of engaging a particular type of labour
(a) | Monthly basic salary plus DA: Rs 1,200 |
(b) | Leave salary: 5% of (a) |
(c) | Employer's contribution to PF: 8% of (a) and (b) |
(d) | Employer's contribution to employees’ state insurance (ESI): 2.5% of (a) and (b) |
(e) | Pro rata expenditure on amenities to labour: Rs 100 per month |
(f) | Number of working hours in a month: 200. |
[BCom., Madurai, Calicut]
[Ans: Rs 59.70 per day]
Illustration 11
Calculate the normal and overtime wages payable to a worker from the following data:
Days | Hours worked |
---|---|
Monday | 8 hours |
Tuesday | 10 hours |
Wednesday | 9 hours |
Thursday | 11 hours |
Friday | 10 hours |
Saturday | 10 hours |
Total | 58 hours |
Normal working hours | 8 hours per day |
Normal rate | Re 1 per hour |
Overtime rate | Up to 9 hours in a day at single rate and over 9 hours in a day at double rate, or up to 48 hours in a week at single rate and over 48 hours at double rate, whichever is more beneficial to the workers |
Solution:
Rs | |
---|---|
Normal wages for 48 hours at Re 1 | Rs 48 |
Overtime wages: | |
At single rate for 5 hours at Re 1 | Rs 5 |
At double rate for 5 hours at Rs 2 = Rs 10 | Rs 15 |
Total wages = | Rs 63 |
Or | |
Normal wages for 53 hours at Re 1 per hour = | Rs 53 |
Overtime wages for 5 hours at Rs 2 per hour = | Rs 10 |
Total wages = | Rs 63 |
Therefore, whichever method is followed, the amount of the wages payable to the worker is Rs 63.
Problem 11. From the following data, prepare a statement showing the cost per man-day of 8 hours:
(a) | Basic salary and DAs: Rs 300 per month |
(b) | Leave salary to a worker: 6% of the basic salary and DA |
(c) | Employer's contribution to PF: 6% of (a) plus (b) |
(d) | Employee's contribution |
(e) | Pro rata expenditure on amenities to labour: Rs 25 per head per month |
(f) | Number of working hours in a month: 200 |
[Madras, B.A. Corp., C & M, Sept. 1995]
[Ans: cost per man-day of 8 hours: Rs 14.48]
Hint: Ignore employee's contribution to PF.
Illustration 12
From the following particulars, prepare a statement of labour cost showing the cost per day (8 hours):
Solution: Statement showing the determination of labour cost per day
Particulars | Amount (Rs) |
---|---|
(i) Monthly salary | 5,000 |
(ii) Leave salary (0.05 × Rs 5,000) | 250 |
(iii) Contribution to PF [0.85 × (Rs 5,000 + Rs 250)] | 446.25 |
(iv) ESI (0.03 × Rs 5,250) | 157.3 |
(v) Allocated share of expenditure on amenities | 600.0 |
Total labour cost per month | 6,453.55 |
Number of working days per month | 25 |
Labour cost per day (Rs 5,828.38/25) | 258.14 |
Problem 12. From the following data, prepare a statement showing the cost per day of 8 hours of engaging in a particular type of labour:
(a) | Monthly basic salary plus DA: Rs 400 |
(b) | Leave salary: 5% of (a) |
(c) | Employer's contribution to PF: 8% of (a) and (b) |
(d) | Employer's contribution to ESI: 2 ½% of (a) and (b) |
(e) | Pro rata expenditure on amenities to labour: Rs 35 per head per month |
(f) | Number of working hours in a month: 200 |
[Madras, B.A. Corp., C & M, May 96]
[Ans: cost per day of 8 hours: Rs 19.96]
Illustration 13
Calculate the normal and overtime wages payable to a worker form the following data:
Days | Hours worked |
---|---|
Monday | 8 |
Tuesday | 10 |
Wednesday | 9 |
Thursday | 11 |
Friday | 10 |
Saturday | 10 |
Normal working hours are 8 hours per day, and normal rate is Rs 5 per hour. Overtime rate is up to 9 hours in a day at single rate and over 9 hours at double rate, or up to 48 hours (in a 6-day week) at single rate and over 48 hours at double rate, whichever is beneficial to the workers.
Solution: Statement showing wages payable to a worker (first method):
Statement showing wages payable to a worker (second method):
(53 hours × Rs 5 per hour) | Rs 265 |
(5 hours × Rs 10 per hour) | Rs 50 |
Rs 315 |
Note: Both the methods yield identical sum of wages payable to a worker.
Problem 13. Calculate the normal and overtime wages payable to a worker from the following data:
Days | Hours worked |
---|---|
Monday | 8 |
Tuesday | 10 |
Wednesday | 9 |
Thursday | 11 |
Friday | 9 |
Saturday | 4 |
Total | 51 |
Normal working hours is eight per day, and normal rate is Re 0.50 per hour. Overtime rate is up to 9 hours in a day at single rate and over 9 hours in a day at double rate, or up to 48 hours in a week at single rate and over 48 hours at double rate, whichever is more beneficial to the workers.
[Madras, B. Com., April 2001; Oct. 2000; Madras, B.Com., (ICE) May 2000 (old); Madras, B.Com. C & M, April 1998; B.Com., Sept. 1992; March 1991]
[Ans: total wages paid for the week = Rs 27; on a day basis: normal wages = Rs 22 (44 × 0.5), overtime wages = Rs 5 (4 × .5 + 3 × 1); on a weekly basis: normal wages = Rs 24 (48 × 0.5), overtime wages: Rs 3 (3 × 1)]
Hint: Saturday should be taken as half day with four normal working hours.
Illustration 14
Computation of wages under various methods of wage payment: In an engineering factory, wages are paid on a weekly basis (48 hours per week) at a guaranteed hourly rate of Rs 4.00. A study revealed that the time required to manufacture a product is 16 minutes. However, a contingency allowance of 25% is to be added to this for normal idle time, setting up time, etc. During the first week of June 1986, X produced 230 pieces. Compute X's wages for the particular week using the following methods of wage payment: (a) time rate, (b) piece rate with a guaranteed time rate, (c) Rowan's premium bonus scheme and (d) Halsey's premium bonus scheme.
Solution:
Problem 14. Compute the earnings of a worker under the (a) time rate method, (b) piece-rate method, (c) Halsey's plan and (d) Rowan's plan for the information given as follows
Wage rate: Rs 5 per hour |
DA: Re 1 per hour |
Standard hours: 80 |
Actual hours: 50 |
[B. Com., Poona]
[Ans: (a) Rs 300, (b) Rs 450, (c) Rs 375 and (d) Rs 393.75]
Illustration 15
Calculation of workers’ earnings and their allocation to jobs: Calculate the earnings of A and B from the following particulars for a month and allocate the labour cost to each job X, Y and Z:
A | B | |
---|---|---|
(i) Basic wages | Rs 200 | Rs 300 |
(ii) DA | 50% | 50% |
(iii) Contribution to PF (on basic wages) | 8% | 8% |
(iv) Contribution to ESI (on basic wages) | 2% | 2% |
(v) Overtime (hours) | 12 |
The normal working hours for the month are 200. Overtime is paid at double the total of normal wages and DA. Employer's contributions to ESI and PF are at equal rates with employees’ contributions. The two workers were employed on jobs X, Y and Z in the following proportions:
Overtime was done on job Y.
Solution: Statement showing the earnings of workers A and B
A | B | |
---|---|---|
Workers | Rs 200.00 | Rs 300.00 |
Basic Wages | 100.00 | 150.00 |
DA (50% of basic wages) | ||
Overtime wages [2 (basic wage + DA) 12 hours] ÷ 300 | 24.00 | – |
= (2 × 150 × 10) ÷ 200 | ___________ | ___________ |
Gross wages earned | 324.00 | 450.00 |
Less: PF 8% of basic wages | 16.00 | 24.00 |
ESI: 2% | 4.00 | 6.00 |
Wages paid (net) | 344.00 | 480.00 |
Statement of labour cost:
Gross wages (excluding overtime; Rs) | 300 | 450 |
Employer's contribution to PF and ESI (Rs) | 20 | 30 |
Ordinary wages (Rs) | 320 | 480 |
Labour rate per hour of A (320 ÷ 200) | 1.6 | |
Labour rate per hour of B (480 ÷ 200) | 2.4 |
Statement showing allocation of wages to jobs:
Problem 15. From the following particulars, prepare a statement of labour cost showing the cost per day (8 hours
(a) | Monthly salary: Rs 900 |
(b) | Leave salary: 5% of (a) |
(c) | Employer's contribution to PF: 8 ½% of (a) and (b) |
(d) | Employer's contribution to ESI: 3% of (a) and (b) |
(e) | Pro rata expenditure on amenities to labour: Rs 112 per head per month |
(f) | Number of working hours in a month of 25 days: 8 hours per day |
[Madras, B. Com. (ICE) C & M, May 1999]
[Ans: cost per day = Rs 46.63]
Illustration 16
Labour hourly rate: Calculate the labour hour rate of a worker P from the following data:
Basic pay | Rs 300 per month |
DA | Rs 250 per month |
Fringe benefits | Rs 150 per month |
Number of working days in a year is 300. Thirty days with full-pay leave and 20 days with half-pay leave in a year are availed and allowed. Assume 8-hour days. What would be the effect on hourly rate if only 30 days full pay leave is allowed?
Solution:
(a) Effective working hours | |
Working days in a year | 300 |
Less: leave days (30 + 20) | 50 |
Effective working days | 250 |
Working hours in a day | 8 hours |
(i) Total effective working hours: 250 × 8 = 2,000 hours
Problem 16. Calculate the labour cost per hour for a worker from the following information
Basic pay | Rs 200 per month |
DA | Rs 150 |
House rent allowance | Rs 100 |
Number of working days per year—300 | |
Leave rules | |
30 days paid leave (PL) with full pay | |
20 days sick leave (SL) with half pay |
Usually, sick leave is fully availed of.
[Madras, B.Com., March 1988]
[Ans: labour cost per hour = Rs 2.34; net labour cost per year = Rs 4,680; effective working days per annum = 250]
Hint: Assume a normal working day of 8 hours.
Illustration 17
Calculate the amount of wages and bonus for a worker from the following particulars:
Job commenced: Monday, 24 December 1994 at 8 a.m. |
Job finished: Saturday, 29 December 1994 at 1 p.m. |
Quantity of work turned out: 638 |
Quantity of pieces passed: 600 |
Worker's rate: Rs 6.00 per hour |
Time allowed: 10 pieces per hour |
Bonus: 40% of time saved |
Assume that the employee worked for 9 hours a day and that there was no overtime.
Solution:
Time taken:
Monday to Friday: 5 days, 9 hours per day | 45 hours |
Saturday: 8 a.m. to 1 p.m. | 5 hours |
50 hours | |
Standard time for 600 pieces at 10 pieces per hour | 60 hours |
Time saved | 10 hours |
Wages for time taken:
Problem 17. The allowed time for a job was fixed as 1 hour by applying the principles of time and motion studies, but the job was completed in 40 minutes. Calculate the wages under the three methods of payment and find the cost per article, assuming the basic time rate of Rs 5 per hour.
[B. Com., Bangalore, Bombay]
[Ans: piece rate = Rs 5.00; Halsey = Rs 4.16; Rowan = Rs 4.44]
Illustration 18
What will be the earnings of a worker at Rs 6.50 per hour when the worker takes 140 hours to do a volume of work for which the standard time allowed is 200 hours. The plan of bonus is on sliding scale as unde
Bonus within the first 10% of saving in standard time | 40% of time saved |
Bonus within the second 10% of saving in standard time | 50% of time saved |
Bonus within the third 40% of saving in standard time | 50% of time saved |
Bonus within the fourth 10% of saving in standard time | 70% of time saved |
Bonus for the rest | 75% of the time saved |
Solution:
Time saved = 200 hours − 140 hour = 60 hour
Basic wages = 140 hours × Rs 6.50 = Rs 910.00
Bonus:
First 10% of 60 hours: 6 hours at 40% | 2.40 hours |
Next 10% of 60 hours: 6 hours at 50% | 3.00 hours |
Next 40% of 60 hours: 24 hours at 50% | 12.00 hours |
Next 10% of 60 hours: 6 hours at 70% | 4.20 hours |
Rest 30% of 60 hours: 18 hours at 75% | 13.50 hours |
100% 60 hours | 35.10 hours |
35.10 hours at Rs6.50 | 228.15 |
Total earnings | Rs 1138.15 |
Problem 18. In a manufacturing concern, bonus to workers is paid on a slab rate based on cost saving towards labour and overheads. The following are the slab rates:
Up to 10% saving | 5% of earnings |
Up to 15% saving | 9% of earnings |
Up to 20% saving | 13% of earnings |
Up to 30% saving | 21% of earnings |
Up to 40% saving | 28% of earnings |
Above 40% saving | 32% of earnings |
The wage rates per hour of four workers P, Q, R and S are Re 1, Rs 1.10, Rs 1.20 and Rs 1.40, respectively. Overhead is recovered on direct wages at the rate of 200%. The standard cost under wages and overhead per unit of production is fixed at Rs 30. The workers completed one unit each in 8, 7, 5½ and 5 hours, respectively. Calculate the following for each worker
(a) | Amount of hours earned |
(b) | Total earnings |
(c) | Total earnings per hour |
[Madras, B.A. Corp. C & M, March 1997]
[Ans: (a) P = Rs 8, Q = Rs 7.70, R = Rs 6.6, S = Rs 7; (b) P = Rs 9.04, Q = Rs 9.32, R = Rs 8.45, S = Rs 8.47; (c) P = Rs 1.13, Q = Rs 1.33, R = Rs 1.536, S = Rs 1.694]
A | B | |
---|---|---|
(a) Basic wages | Rs 200 | Rs 200 |
(b) DA | 50% | 55% |
(c) PF (on basic wages) | 8% | 8% |
(d) ESI (on basic wages) | 2% | 2% |
(e) Overtime | 10 hours | – |
(f) Idle time and leave | – | 16 hours |
The normal working hours for the month are 200 hours. Overtime is paid at double the normal wage plus DA. Employer's contributions to ESI and PF are at equal in rate with employee's contributions. The month contains 25 working days and one paid holiday. The two workers were employed on jobs X, Y and Z in the following proportions:
Overtime was done on job Y.
Solution: Statement showing the earnings of workers
A (Rs) | B (Rs) | |
---|---|---|
Basic wages | 200 | 200 |
DA | 100 | 110 |
Overtime wages | 30 | – |
Gross wages earned | 330 | 310 |
Less: | ||
Employee's contribution to PF | 16 | 16 |
Employee's contribution to ESI | 4 | 4 |
Net wages due | 310 | 290 |
Statement of labour cost | ||
Gross wages (excluding overtime) | 300 | 310 |
Employer's contribution to PF and ESI | 20 | 20 |
320 | 330 | |
Labour cost per hour | 1.60 | 1.65 |
Allocation of wages to jobs:
Solution:
Weekly wage summary:
Wages (180 workers at Rs 17.50 each) | Rs 3,150.00 | |
DA (48/208 × Rs 130 × 180) | Rs 5,400.00 | |
Rs 8,550.00 | ||
Bonus (8 1/3% of Rs 8,550) | Rs 712.50 | |
Rs 9,262.50 | ||
Less: | ||
PF contribution (8% -1 1/6% of Rs 8,550) | Rs 584.00 | |
Family pension (1/2 of 1 1/6 of Rs 8,550) | Rs 50.00 | |
ESI contribution at Rs 1.25 per worker | Rs 225.00 | Rs 859.00 |
Net wages | Rs 8,403.50 |
Computation of departmental labour cost:
Wages | 3,150.00 |
DA | 5,400.00 |
Bonus | 712.50 |
PF contribution (584 + 50) | 634.00 |
ESI contribution | 225.00 |
Leave pay (8,550 × 2/52) | 328.50 |
Total labour cost | 10,450.00 |
Calculate the (a) normal wage rate, (b) cost of material used for producing the product and (c) input of material if the unit material cost is Rs 32.
Solution:
Factory cost of Raja
Material | x |
Wages | 30y |
Bonus (40g × 10/50) | 12y |
Overheads | 720 |
x + 30y + 12y + 720 |
Factory cost of Ram
Material | x |
Wages | 40y |
Bonus (40g × 10/50) | 8y |
Overheads | 960 |
x + 40y + 8y + 960 |
Solution:
Piecework wages = Rs 1,290
Time rate wages = Rs 990
Piecework premium = Rs 300
Ratio = 330:330:220:110
Fitter 1 = 100
Fitter 2 = 100
Labourer = 67
Boy = 33
Direct material = Rs 2,010
Direct wages = Rs 1,290
Prime costs = Rs 3,300
Works overhead = Rs 660
Factory cost = Rs 3,960
Selling overhead = Rs 396
Cost of sales = Rs 4,356
Profit = Rs 1,089
Sales = Rs 5,445
The normal working hours per week of 6 days are 48, or 8 hours per day. All Sundays are paid holidays. (There are no other holidays during the month.)
PF contribution was 8% of monthly wages by employees.
PF contribution was 8% of monthly wages by the employer.
ESI contribution was 3% of monthly wages by employee and 5% of monthly wages by the employer.
From the foregoing data, calculate the following:
Solution:
(a) Calculation of net wages payable for the month | |
Gross wages for the month | |
(a) Foreman at Rs 800 per month | Rs 800.00 |
(b) Mechanic at Rs 15 per day × 30 days | Rs 450.00 |
(c) Machine operator at Rs 12 per day × 30 days | Rs 360.00 |
(d) Worker at Rs 10 per day × 30 days | Rs 300.00 |
Rs 1,910.00 | |
Less: deductions | |
PF contribution at 8% at Rs 1,910 by employees | Rs 152.80 |
ESI contribution at 3% of Rs 1,910 by employees | Rs 57.30 |
Net wages payable | Rs 1,699.90 |
(b) Employer's share of PF (8% of Rs 1,910) | Rs 152.80 |
Employer's share of PF (8% of Rs 1,910) | Rs 152.80 |
Total amount of PF contribution to be deposited by the employer | Rs 305.60 |
(c) Employer's share of ESI (5% of Rs 1,910) | Rs 95.50 |
Employer's share of ESI (3% of Rs 1,910) | Rs 57.30 |
ESI contribution to be deposited by the employer | Rs 152.80 |
(d) Total labour cost to the employer: | |
Total gross wages | Rs 1,910.00 |
Add: employer's contribution towards PF | Rs 152.80 |
Employer's contribution towards ESI | Rs 95.50 |
Rs 2,158.30 | |
(e) Total cost of job | |
Material | Rs 6,000.00 |
Labour cost | Rs 2,158.30 |
Prime cost | Rs 8,158.30 |
Overheads at 50% of prime cost | Rs 4,079.15 |
Total cost of job | Rs 12,237.45 |
Solution: Workers
(i) Computation of earnings per day
(a) Halsey's premium bonus method:
Earnings = hourly rate × time taken + time saved/2
A | B | C |
---|---|---|
8 × 8 | 8 × 8 + (8 × 2/10) | 8 × 8 (8 × 8 × 4/12) |
Rs 64 | Rs 76.80 | Rs 85.33 |
Solution:
Workers | A | B |
---|---|---|
Standard time (hours) | 40 | 40 |
Actual time (hour) | 32 | 30 |
Time saved (hour) | 8 | 10 |
Wages paid for time taken at Rs x per hour (Rs) | 32x | 30x |
Worker A: 32 + 4x = 36x
Worker B: 30x + 7.5x = 37.5x
From the aforementioned information, the following simultaneous equations can be written:
On submitting equation (i) from equation (ii), we get the following results:
or
or
On substituting the value of x in equation (1), we get
or
or
The wage rate per hour is Rs 10 and the cost of raw material input is Rs 2,000 for the job.
Normal rate per hour: Rs 2.70
Standard time per unit: 1 minute
Output per day is as follows:
Worker A: 390 units
Worker B: 450 units
Worker C: 600 units
Working hours per day are eight.
Solution:
Basic calculations:
Normal rate per hour: Rs 2.70
Standard rate per hour: 60 units
Piece rate per unit (2.7/60): 0.045 paise
Efficiency level:
Up to 83% efficiency = Ordinary piece rate
83% to 100% efficiency = 110% of ordinary piece rate
Over 100% efficiency = 120% of ordinary piece rate
Statement of earnings of workers under Merrick's multiple piece-rate system:
You are required to do the following:
Solution:
Basic calculations:
Let x be the cost of material and y be the normal rate of wages per hour.
Factory cost of worker Ram:
Material | x |
---|---|
Wages | 60y |
Bonus (60y × 40/100) | 24y |
Overheads | 600 |
Factory cost of worker Raju:
Material | x |
---|---|
Wages | 80y |
Bonus (20y × 50/100) | 10y |
Overheads | 800 |
The two simultaneous equations can be solved as follows to ascertain the values of x and y:
On subtracting equation (1) from equation (2), we get
On putting the value of y in equation (1), we get
Comparative statement of the factory costs of the products made by the two workers:
Ram | Raju | |
---|---|---|
Material cost | 3,628 | 3,628 |
Direct wages | 420 | 560 |
Bonus | 168 | 70 |
Factory overheads | 600 | 800 |
Factory costs | 3,640 | 3,800 |
After reading this chapter one must understand that labour is the second most important cost component of a product. Labour cost has certain special features, and controlling it involves facing some peculiar difficulties. Thus, different incentive schemes are used. Labour cost is also important in the light of controlling labour turnover.
Calculation of labour turnover
Output payment
Up to 83% ordinary piece rate
83% to 100%: 110% of ordinary piece rate
Above 100%: 120% of ordinary piece rate
Labour
Output payment
Output below standard time rate
Output at standard 20% bonus on time rate
Output above standard high piece rate on the entire output
Earnings = hours worked × rate per hour + 50% of time saved × rate per hour
Earnings = hours worked × rate per hour + time saved / time allowed in hours worked × rate per hour
Earnings = rate per hour × square root of standard hours of actual hours
Earnings = actual hours × rate per hour + bonus percentage × hours worked × rate per hour
Bonus calculation
Efficiency bonus
Up to 66 2/3%: no bonus
66 2/3–% to 100%: up to 20% bonus
Above 100%: 20% + 1% for every 1% increase in efficiency
Objective-Type Questions
I. State whether the following statements are true or false:
[Ans: 1—false, 2—true, 3—true, 4—false, 5—true, 6—false, 7—true, 8—true, 9—true, 10—true]
II. Choose the correct answer:
Ans: (d)
Ans: (b)
Ans: (a)
Ans: (c)
Ans: (a)
Ans: (a)
Ans: (a)
Ans: (b)
Ans: (d)
Ans: (d)
Short Answer-Type Questions
Essay-Type Questions
Standard time: 15 minutes per unit |
Time worked: 8 hours |
Units produced: X—28 Y—35 |
Normal piece rate per unit: Rs 2 |
[Ans: earnings of X = Rs 44.80; earnings of Y = Rs 84.00]
Standard time allowed: 10 units per hour |
Normal time rate per hour: Re 1 |
Differential to be applied: |
80% of piece rate when below standard |
120% of piece rate at or above standard |
In a day of 8 hours, |
A produced 75 units |
B produced 100 units |
[Madras, 1999]
[Ans: earnings of workers:]
A (Rs) | B (Rs) | |
---|---|---|
Straight piece rate | 7.5 | 10 |
Taylor's differential piece rate | 6 | 12 |
Normal rate per hours: Rs 1.80 |
Standard time per unit: 20 seconds |
Differentials to be applied: |
80% of piece rate below standard |
120% of piece rate at or above standard |
Worker A produces 1,300 units per day, and worker B produces 1,500 units per day |
[Madras, 1989]
[Ans: earnings of workers]
A | B | |
---|---|---|
(Rs ps.) | (Rs ps.) | |
Straight piece-rate system | 13.00 | 15.00 |
Taylor's differential piece-rate system | 10.40 | 18.00 |
Hint: Assume normal working day of 8 hours.
Standard time: | 10 hours |
Hourly wage rate: | Rs 5 |
Time taken: | 8 hours |
Overhead rate per hour: | Rs 6 |
[B. Com., Bangalore]
[Ans: wages are (a) Rs 45 and (b) Rs 48; employer's savings are (a) Rs 17 and (b) Rs 14]
[B. Com., Bombay]
[Ans: (a) Rs 208.75, (b) Rs 190.00, (c) Rs 180.63]
[B. Com., Madurai]
[Ans: total earnings and hourly rate under Halsey are Rs 190.00 and Rs4.75; total earnings and hourly rate under Rowan are Rs 202.00 and Rs5.05]
[B.Com.]
[Ans: under Halsey's plan = Rs 195; under Rowan's plan = Rs 204]
Merrick's Multiple Piece-rate System
Standard production: 120 units |
Production of A: 90 units |
Production of B: 100 units |
Production of C: 130 units |
Ordinary piece rate: Re 0.10 |
[Madras, 1999]
[Ans: earnings of workers—A = Rs 9.00, B = Rs 11.00 and C = Rs 15.60]
Standard production per hour: 12 units |
Normal rate per hour: Re 0.60 |
In an 8-hour day: |
A produced 64 units, B produced 96 units, |
C produced 84 units and D produced 100 units |
[Madras, 1991]
[Ans: earnings of workers—A = Rs 3.20, B = Rs 5.28, C = Rs 4.62 and D = Rs 6.00]
Hint: At 100% efficiency also, 110% of the ordinary piece rate applies.
Halsey's Plan
(a) Standard time: 12 hours; |
Actual time: A—10 hours, B—8 hours and C—6 hours |
Hourly rate: Rs 8. |
(b) Hourly rate of wages: Rs 10 Standard time for the production of a dozen units of a product = 2 hours Actual time taken by the worker to produce 25 dozens: 40 hours |
(c) Articles manufactured by S, a worker in a factory: 300 Standard time allowed: 10 minutes per unit Actual time: 44 hours Standard rate: Rs 5 per hour |
[Ans: earnings of workers: (a) A = Rs 88, B = Rs 80, C = Rs 72; (b) Rs 450; (c) Rs 235]
[B. Com., Bombay]
Ans:
Standard production: 10 units per hour |
Factory day: 8 hours |
Normal time rate: Rs 5 |
Differential rates to be applied: |
80% of piece rate below standard |
120% of piece rate at or above standard |
A produced 70 units in a day |
B produced 85 units in a day |
[B. Com., Madurai]
[Ans: under straight piece rate, A gets Rs 35 and B gets Rs 42.50; under Taylor's differential system, A gets Rs 28 and B gets Rs 51]
Efficiency | Bonus |
---|---|
90% | 10% |
100% | 20% |
There is an increase of 1% of bonus for every 1% further rise in efficiency. Calculate the total earnings of A, B, C and D who worked 26 days in a month, with outputs 500; 900; 1,000; and 1,200 articles, respectively.
[B.Com., Mysore]
[Madras, 1998]
[Ans: total wages including bonus and labour cost per unit for different outputs: 5 units—Rs 12 and Rs 2.4 per unit; 8 units—Rs 14 and Rs 1.75 per unit; 12 units—Rs 18 and Rs 1.5 per unit; 15 units—Rs 21 and Rs 1.4 per unit]
Rowan's Plan
[Madras, 1986]
[Ans: earnings under Rowan's plan = Rs 8.40; actual hours worked = 12]
Number of working hours per week: 48 |
Wages per hour: Rs 3.75 |
Normal time per piece: 20 minutes |
Rate per piece: Rs 1.50 |
Normal output per week: 120 pieces |
Actual output for the week: 150 pieces |
Differential piece rate: 80% of piece rate when output is below standard and 120% when output is above standard.
[Madras, 1990]
[Ans: earnings of worker for the week: (a) Rs 225, (b) Rs 270, (c) Rs 183.75 and (d) Rs 187.20; standard time for the output = 50 hours =
Weekly working hours | 48 |
Hourly wage rate | Rs 7.50 |
Piece rate per unit | Rs 3 |
Normal time taken per piece | 20 minutes |
Normal output per week | 120 pieces |
Actual output for the week | 150 pieces |
Differential piece rate is 80% of piece rate when output is below normal and 120% of piece rate when output is above normal.
[Madras, 1999]
[Ans: earnings of the worker for the week: (a) Rs 450, (b) Rs 540, (c) Rs 367.5, (d) Rs 374.40]
Emerson's Efficiency Plan
Standard output in 12 hours | 192 units |
Actual output in 12 hours | 168 units |
Time rate | Re 0.75 per hour |
If the actual output is 240 units, what will be the amount of bonus and earnings?
[Madras, 1991]
[Ans: (a) bonus and earnings when actual output is 168 units: bonus = Re 0.72 and earnings = Rs 9.72; (b) if actual output is 240 units, bonus = Rs 4.05 and earnings = Rs 13.05]
Hint: Bonus at 87.5% efficiency is 8% under Emerson's scheme.
Standard production: 10 units per hour |
Normal time rate: Rs 5.00 |
Differential piece rate to be applied: |
80% of piece rate for performance below standard |
120% of piece rate for performance at or above the standard |
Actual performance: |
X produced 80 units in a day of 10 hours |
Y produced 110 units in a day of 10 hours |
[B. Com., Calicut]
[Ans: straight piece rate: X—Rs 32, Y—Rs 66; differential piece rate: X—Rs 40, Y—Rs 55]
Efficiency | Bonus payable |
---|---|
90% | 10% |
100% | 20% |
There is an increase of 1% for every 1% further rise in efficiency. Find the total earnings of A, B, C and D who have worked 26 days in a month. The workers’ outputs are A—500 units, B—900 units, C—1000 units and D—1,100 units.
[B. Com., Punjab]
[Ans: A—Rs 650, B—Rs 715, C—Rs 780, D—Rs 845]
Bedeaux's Point System
[Ans: earnings = Rs 230 (200 + 30)]
Barth's Variable-sharing Plan
Standard time for a job | 50 hours |
Actual time taken | 40 hours |
Standard rate per hour | Rs 10 |
Calculate wages as per Barth's variable-sharing plan.
(a) Hourly rates of wages (guaranteed): Rs 5.00 |
(b) Standard time for producing one dozen articles: 3 hours |
(c) Actual time taken by the worker to produce 20 dozen articles: 48 hours |
[B.Com., Nagarjuna]
[Ans: (a) Rs 288; (b) Rs 270]
Normal rate per hour: Rs 2.40 |
Standard time per unit: 30 seconds |
Differentials to be applied: |
80% of piece rate below standard |
120% of piece rate at or above standard |
Worker A produces 800 units per day and B produces 1,000 units per day.
[Ans: (a) A—Rs 16 and B—Rs 20; (b) A—Rs 17.6 and B—Rs 24]
Standard time per unit: 36 seconds |
Normal rate per hour: Rs 9 |
Differential rates to be applied: |
80% of piece rate when below standard |
120% of piece rate at or above standard |
The workers have produced in a day of 8 hours as follows: |
A—700 units |
B—900 units |
[B. Com., Bombay]
[Ans: (a) A—Rs 63 and B—Rs 81; (b) A—Rs 69.3 and B—Rs 97.20]
Within the first 10% saving in standard time, bonus is 40% of the time saved. |
Within the second 10% saving in time, bonus is 50% of the time saved. |
Within the third 10% saving in standard time, bonus is 60% of the time saved. |
Within the fourth 10% saving in standard time, bonus is 70% of the time saved. |
For the rest, bonus is 75% of the time saved. |
[Madras, 1992]
[Ans: time wages = 140 × 0.55 = Rs 77; bonus for 30 hours = 30 × 0.55 = Rs 16.5; total earnings = Rs 93.5]
Hint: Time saved = 200 − 140 = 60 hours; 10% in standard time = 20 hours.
Group Bonus Schemes
The group piece rate is Re 1 per unit and the team has produced 150 units. Calculate the gross weekly earnings of each worker taking into consideration that each individual is entitled to a DA of Rs 20 per week.
[Calcutta, B.Com.]
[Ans: gross weekly earnings: A—Rs 52, B—Rs 68, C—Rs 79, D—Rs 74; group bonus: A—Rs 10, B—Rs 15, C—Rs 15, D—Rs 10; individual wages: A—Rs 2, B—Rs 3, C—Rs 14, D—24; group work wages: A—Rs 20, B—Rs 30, C—Rs 30, D—Rs 20; DA: A—Rs 20, B—Rs 20, C—Rs 20, D—Rs 20]
Hint: Group bonus is divided in the ratio of group work wages.
The following particulars are available for a group of four workers P, Q, R and S:
Output of the group: 16,000 units
Piece rate per 100 units: Rs 2.50, in addition to time wages
Calculate the bonus and total wages earned by each worker.
[Ans: bonus: P—Rs 90, Q—Rs 90, R—Rs 120, S—Rs 100; total wages: P—Rs 162, Q—Rs 162, R—Rs 216, S—Rs 180]
(i) Wages for normal hours worked | Rs 20,500 |
(ii) Wages for overtime | Rs 2,200 |
(iii) Leave wages | Rs 2,700 |
(iv) Deduction of employees’ share to state insurance | Rs 500 |
(v) Employee's contribution to PF | Rs 1,600 |
(vi) House rent is to be recovered from 30 employees at the rate of Rs 10 per month |
[I.C.W.AInter]
[Ans: Rs 22,000]
(i) Monthly salary: Rs 1,350.00 |
(ii) Leave salary: 5% of salary. |
(iii) Employer's contribution to PF: 8.5% of (i) and (ii) |
(iv) Employer's contribution to state insurance: 3% of (i) and (ii) |
(v) Pro rata expenditure on amenities to labour: Rs 75 per head per month |
(vi) Number of working hours in a month: 200 (assuming 8-hour day) |
[B. Com., Banglaore]
[Ans: Rs 66.22]
(a) Basic salary: Rs 55 per day |
(b) DA: Re 0.50 per every point over 100 (cost of living index for working class); current cost of living index is 700 points. |
(c) Leave salary: 10% of (a) and (b) |
(d) Employer's contribution to PF: (a) + (b) + (c) |
(e) Employer's contribution to state insurance: 2.5% of (a) + (b) + (c) |
(f) Expenditure on amenities to labour: Rs 20 per head per month |
(g) Number of working days in a month: 25 days of 8 hours |
[ICWA Inter]
[Ans: Rs 82.20]
Cash Required for Wage Payment
(1) Normal time salaries: Rs 65,000 |
(2) DA: 20% of (1) |
(3) Leave wages: 5% of (1) and (2) |
(4) Employee's contribution to ESI and PF: 3% and 5% respectively on (1) and (2) |
(5) Income tax deduction at source: Rs 4,000 |
(6) Deduction for insurance premium: Rs 5,000 |
(7) Festival advance must be recovered from 60 employees at Rs 100 per employee. |
[Ans: cash required for payment of salaries = Rs 60,660]
(a) Basic salary: Rs 2 per day |
(b) DA: 25 paise for every point over 100 (cost of living index for working class); current cost of living index is 700 points |
(c) Leave salary: 10% of (a) and (b) |
(d) Employer's contribution to PF: 8% of (a), (b) and (c) |
(e) Employer's contribution to state insurance: 2.5% of (a), (b) and (c) |
(f) Expenditure on amenities to labour: Rs 20 per head per mensem |
(g) Number of working days in a month: 25 days of 8 hours each |
[Madras, 1993]
[Ans: labour cost per man-day = Rs 10.52, per month = Rs 263.10]
(a) Basic salary: Rs 5 per day |
(b) DA: 20 paise per every point over 100 (cost of living index for workers); current cost of living index is 800 points. |
(c) Leave salary: 5% of (a) and (b) |
(d) Employer's contribution to PF: 8% of (a) and (b) |
(e) Employer's contribution to state insurance: 5% of (a), (b) and (c) |
(f) Number of working days in a month: 25 days of 8 hours each |
(Madras, 1998)
[Ans: labour cost per man-day = Rs 12.57; labour cost per month = Rs 314.42]
(a) Monthly salary [Basic + DA] Rs200 |
(b) Leave salary payable to the workers 5% of salary. |
(c) Employer's contribution to PF 8% of salary [items a and b] |
(d) Employer's contribution to ESI 2 ½% of salary [items a and b] |
(e) Pro rata to labour expenditure on amenities Rs17.95 per head per month. |
(f) Number of working hours in a month 200. |
[Madras, 1986]
[Ans: labour cost per day = Rs 10; labour cost per month = Rs 250]
Worker's Earnings, Labour cost and their Allocation to Jobs
A | B | |
---|---|---|
(a) Basic wages | Rs 100 | Rs 100 |
(b) DA on basic wages | 50% | 55% |
(c) PF on basic wages | 8% | 8% |
(d) ESI (on basic wages) | 2% | 2% |
(e) Overtime | 10 hours | – |
(f) Idle time and leave | – | 16 hours |
The normal working hours for a month are 200. Overtime is paid at double the normal rate plus DA. Employee's contributions to state insurance and provident fund are at equal rates with the employer's contributions. The month has 25 working days and one paid holiday. The two workers were employed on jobs X, Y and Z in the following proportions:
Overtime was done on job Y.
Madras, 1994]
[Ans: earnings of workers: A—Rs 160, B—Rs 165; labour cost (excluding OT):
A—Rs 160, B—Rs 165; labour costs of jobs: X—Rs 146.5, Y—Rs 96, Z—Rs 97.5]
Normal rate per hour = Rs 1.80 |
Standard time per unit = 20 seconds |
Differentials to be applied: |
80% of piece rate below standard |
120% of piece rate at or above standard |
Worker A produces 1,300 units per day and worker B produces 1,500 units per day |
Ans:
Earnings of worker A:
Low piece rate has been applied because worker A's daily production of 1,300 units is less than the standard daily production of 1,440 units.
Earnings of worker B:
High piece rate has been applied because worker B's daily production of 1,500 units is more than the standard daily production of 1,440 units.
Normal rate per hour | Rs 1.80 |
Standard time per unit | 1 minute |
Output per day is as follows: | |
Worker A—384 units | |
Worker B—450 units | |
Worker C—552 units | |
Working hours per day are 8 |
Ans:
Earnings of worker A:
Normal piece rate has been applied because worker A's level of performance is 80%, which is below 83%.
Earning of worker B:
Worker B's level of performance is 93.75%, which is between 83% and 100%; so B is entitled to 110% of normal piece rate (that is, 110% of 3 paise or 3.3 paise per unit).
Earnings of worker C:
Worker C's level of performance is 115%, which is more than 100% of standard output; so C is entitled to 120% of normal piece rate (that is, 120% of 3 paise or 3.6 paise per unit).
(a) Standard production per month per worker is 1,000 units |
(b) Actual production during the month: |
A—850 units, B—1,000 units and C—1,100 units |
(c) Piecework rate: 50 paise per unit |
Ans:
Earnings of worker A:
Worker A's level of performance is 85%, which is below the standard performance; so he will get Rs 500, the guaranteed monthly payment.
Earnings of worker B:
Worker B's level of performance is 100%; so he will get wages for the standard time and a 20% bonus. Thus, his earnings will be as follows:
Rs | |
Wages for 1,000 units at 50 paise per unit | 500 |
Add: 20% bonus | 100 |
600 |
Earnings of worker C:
Worker C's level of performance is 110%, which is more than the standard performance; so he will get piece wages plus 20% bonus. Thus, his earnings are as follows:
Rate per hour = Rs 1.50 per hour |
Time allowed for job = 20 hours |
Time taken = 15 hours |
Calculate the total earnings of the worker under Halsey's plan. Also find the effective rate of earning.
Ans:
Effective rate of earning per hour
Ans:
Note: Percentage of bonus is to be taken as 50% when it is not given.
Ans:
Weekly working hours | 40 |
Hourly wage rate | Rs 7.50 |
Piece rate per unit | Rs 3.00 |
Normal time taken per piece | 20 minutes |
Normal output per week | 120 pieces |
Actual output per week | 150 pieces |
Differential piece rate | 80% of piece rate when output is below normal and 120% of piece rate when output is above normal |
Ans:
Particulars | Amount (Rs) |
(a) Straight piece | 450 |
(b) Differential piece rate | 540 |
(c) Halsey's premium scheme | 337.50 |
(d) Rowan's premium scheme | 360 |
Ans:
Govind = (80 × Re 0.40) = Rs = 32
Ram = (100 × Re 0.40) = Rs 40
Shyam = (120 × Re 0.40) = Rs 48
Govind = (8 × Rs 4) + (0.50 × nil × Rs 4) = Rs 32
Ram = (8 × Rs 4) + [0.50 × (10 – 8)] × Rs 4 = Rs 36
Shyam = (8 × Rs 4) + [0.50 × (12 – 8) × Rs 4 = Rs 40
Govind = (8 × Rs 4) + (nil/ 8hours) × 8 hours × Rs 4 = Rs 32
Ram = (8 × Rs 4) + (2 / 10) × 8 hours × Rs 4 = Rs 38.40
Shyam = (8 × Rs 4) + (4/12) × 8 hours × Rs 4 = Rs 42.67
Bonus payable is 45%, calculated as follows:
At 100% efficiency | 20% of time wages |
For the next 25% efficiency at 1% for each 1% increase in efficiency beyond 100% | 25% of time wages |
Total bonus payable | 45% of time wages |
Ans:
Total wages payable | 29 |
(a) Basic salary | Rs 2 per day |
(b) DA | 25 paise per every point over 100 (cost of living index for working class); current cost of living index is 700 points |
(c) Leave salary | 10% of (a) and (b) |
(d) Employer's contribution to PF | 8% of (a), (b) and (c) |
(e) Employer's contribution to state insurance | 2.5% of (a), (b) and (c) |
(f) Expenditure on amenities to labour | Rs 20 per head per mensem |
(g) Number of working days in a month | 25 days of 8 hours each |
Ans:
Total | 10.52 |
Days | Hours worked |
Monday | 8 hours |
Tuesday | 10 hours |
Wednesday | 9 hours |
Thursday | 11 hours |
Friday | 9 hours |
Saturday | 4 hours |
Total | 51 hours |
Normal working hours | 8 hours per day |
Normal rate | Re 1 per hour |
Overtime rate | Up to 9 hours in a day at single rate and over 9 hours in a day at double rate, or up to 48 hours in a week at single rate and over 48 hours at double rate, whichever is more beneficial to the workers |
Ans:
irrespective of the method followed, the amount of wages payable to the worker is Rs 54.]
(a) Monthly salary: Rs 4,500 |
(b) Leave salary: 5% of basic salary |
(c) Employer's contribution to PF: 8.5% of (a) and (b) |
(d) Employers contribution to ESI: 3% of (a) and (b) |
(e) Pro rata experience on amenities to labour: Rs 560 per head per month |
(f) Number of working hours in a month of 25 days: 8 hours per day |
Ans:
Labour cost per day (Rs 5,828.38/25) | Rs 233.14 |
Days | Hours worked |
Monday | 8 |
Tuesday | 10 |
Wednesday | 9 |
Thursday | 11 |
Friday | 9 |
Saturday | 4 |
Normal working hours are 8 per day, and normal rate is Rs 5 per hour. Overtime rate is up to 9 hours in a day at single rate and at double rate if time exceeds 9 hours, or up to 48 hours (in a 6-day week) at single rate and over 48 hours at double rate, whichever is beneficial to the workers.
Ans:
Rs 270 |
Note: Both the methods yield the identical sum of wages payable to a worker.
Ans:
(a) Attimerate,wages = hours worked × rate per hour = 48 hours × Rs 3 = Rs. 144 |
(b) X has to be paid Rs 168 as wages. |
(c) Rowan's scheme |
= 48 × 3 + (8/56 × 48 × 3) = Rs 144 + 20.57 = Rs 164.57 |
(d) Halsey's scheme Earnings = hours worked hourly rate + (50/100 × time saved × hourly rate) |
=48 × 3 + (0.50 × 8 × 3) = Rs 144 + 12 = Rs 156 |
A | B | |
(a) Basic wages | Rs 100 | Rs 160 |
(b) DA | 50% | 50% |
(c) Contribution to PF (on basic wages) | 8% | 8% |
(d) Contribution to ESI (on basic wages) | 2% | 2% |
(e) Overtime (hours) | 10 |
The normal working hours for the month are 200. Overtime is paid at double the total of normal wages and DA. Employer's contributions to state insurance and PF are at equal rates with employees’ contributions. The two workers were employed on jobs X, Y and Z in the following proportions:
Overtime was done on job Y.
Ans:
Basic pay | Rs 200 per month |
DA | Rs 150 per month |
Fringe benefits | Rs 100 per month |
Number of working days in a year is 300. Thirty days full-pay leave and 20 days half-pay leave in a year is availed and allowed. Assume 8-hour days. What would be the effect on hourly rate if only 30 days full-pay leave is allowed?
Ans:
Effective working days | 270 |
Effective working hours | 2,160 |
Total wages payable | Rs 5,400 |
Hourly rate | Rs 2.50 |
Effect on hourly rate = Rs 2.61 − Rs 2.50 = | Re 0.11 |
Job commenced: Monday, 24 December 1994 at 8 a.m. |
Job finished: Saturday, 29 December 1994 at 1 p.m. |
Quantity of work turned out: 638 |
Quantity of pieces passed: 600 |
Worker's rate: Rs 5.00 per hour |
Time allowed: 10 pieces per hour |
Bonus: 40% of time saved |
Assume that the employee worked for 9 hours a day and there is no overtime. |
Ans:
Total earnings | Rs 270 |
Bonus within the first 10% of saving in standard time | 40% of time saved |
Bonus within the second 10% of saving in standard time | 50% of time saved |
Bonus within the third 40% of saving in standard time | 50% of time saved |
Bonus within the fourth 10% of saving in standard time | 70% of time saved |
Bonus for the rest | 75% of the time saved |
Ans:
Total earnings | Rs 963.05 |
Normal rate per hour | Rs 15 |
Standard time per unit | 2 minutes |
Output per day is as follows: | |
Worker A: 195 units | |
Worker B: 232 units | |
Worker C: 250 units | |
Working hours per day are 8 |
Solution:
Calculation of level of performance:
Ans:
Earnings of worker A:
Normal piece rate has been applied because worker A's level of performance is 81.25%, which is lower than 83%.
Earnings of worker B:
Worker B's level of performance is 96.66%, which is between 83% and 100%; so B is entitled to 110% of normal piece rate (that is, 110% of 3 paise or 3.3 paise per unit).
Earnings of worker C:
Worker C's level of performance is 104.17%, which is more than 100% of standard output; so C is entitled to 120% of normal piece rate (that is, 120% of 3 paise or 3.6 paise per unit).
3.14.134.188